LONDON Europe's banks face a capital hole of at least 200 billion euros ($404 billion) if Greece forces them to slash the value of its debt and other troubled euro-zone countries like Italy and Ireland follow suit.
Talk that Europe needs to shore up its banks -- if necessary with capital from taxpayers' pockets -- is gathering steam as talk of a possible Greek default gains pace. That in turn is increasing speculation that banks will have to write down debt from governments right across the region.
The International Monetary Fund reckons Europe's banks could need to recapitalize to the tune of 200 billion euros and many bank analysts are far gloomier than the Fund.
Credit Suisse calculates banks may need 400 billion euros of capital by 2012 to fill a hole left by a recession, losses on sovereign debt and higher funding costs.
Barclays Capital estimated European banks could need about 230 billion euros to preserve a core Tier 1 capital ratio of 6 percent in the extreme case they lose half the value of Greece, Irish, Italian, Portuguese and Spanish (GIIPS) debt.
But private investors are clear that they will not provide the money to stop the capital gap such writedowns would cause, for as long as Europe struggles to find a joined-up strategy to exit its spiraling debt crisis.
"Capital markets investors would be willing to step up and subscribe to rights issues etc if you could quantify the size of the hole," said an investment banker whose job it is to sell bank shares, and who asked not to be named.
Banks could be forced to write down their Greek debt holdings by half if Athens fails to hammer out a deal about a second bail-out, Greece's finance minister has said according to two newspapers in Greece on Friday.
The country's government later said it was still focusing on getting its second bail-out done, but a statement from the French regulator saying that 15 to 20 banks needed more capital kept the worries about Europe's banks firmly in place.
The French statement said no French banks needed more capital however, and other major countries such as Germany and Spain are dragging their heels and claiming their banks are in no desperate need -- often at odds with the wider market view.
(Reporting by Douwe Miedema, Steve Slater, Kylie MacLellan and Michael Shields; Editing by Sophie Walker)